B.COM – I – ACCOUNTINGa4accounting.weebly.com/uploads/7/1/2/8/7128209/b.com_-_i_-_2011r.pdfSOLUTION 2 (b) Accounting Principles for Adjustments: 1. Matching principle. 2. Accounting

The workings under the heading of “Additional Working” are not required according to the requirement of the examiner. These are only for understanding the solutions. For more help, visit www.a4accounting.net

2011

Compiled and Solved by:

Sameer Hussain

B.COM – I – ACCOUNTING

REGULAR

http://www.a4accounting.net/

Compiled & Solved by: Sameer Hussain www.a4accounting.net

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B . C o m – I – A c c o u n t i n g – 2 0 1 1 ( R e g u l a r )

Page 2

ACCOUNTING – 2011

REGULAR Instructions: (1) Attempt any FIVE questions. (2) All questions carry equal marks. (3) Use of calculator is allowed. Do not use abbreviations. (4) All journal entries should be properly dated, intended and narrated. Q.No.1 WORK SHEET GIVEN: Following is the pre-closing trial balance of Mehfooz & Co. on December 31, 2010:

Title of Account Debit Credit

Cash 70,000

Accounts receivable 24,000

Aircraft 1,200,000

Allowance for depreciation – Aircraft 12,000

Accounts payable 18,000

Bank loan 25,000

Capital 1,000,000

Revenue from passengers 260,000

Revenue from cargo 85,000

Maintenance and overhaul 33,000

Passenger services 15,000

Aircraft fuel 26,000

Salaries expense 32,000

1,400,000 1,400,000

Additional Information: (i) Salaries accrued Rs.3,000 and prepaid salaries for Rs.5,000. (ii) Bad debts estimated at 10% of accounts receivable. (iii) Interest on bank loan Rs.5,000 outstanding. (iv) Unearned revenue from cargo Rs.10,000 and earned receivable Rs.7,000. (v) Proprietor withdrew cash from the business Rs.5,000 for private use. (vi) Book value of Aircraft was estimated at Rs.1,176,000.

REQUIRED Prepare 10 – column worksheet from the data given above. SOLUTION 1

MEHFOOZ & CO. WORK SHEET

FOR THE PERIOD ENDED 31 DECEMBER 2010


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Page 3

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Page 4

Q.No.2 ADJUSTING AND OPENING ENTRIES GIVEN: Take the balances and adjustment data given in question No. 1. REQUIRED

(a) Adjusting and opening journal entries in General Journal. (b) Name any three basic principles of accounting observed necessarily for making periodic

adjustments. SOLUTION 2 (a)

MEHFOOZ & CO. ADJUSTING ENTRIES

FOR THE PERIOD ENDED 31 DECEMBER 2010

Date Particulars P/R Debit Credit

1 (a) Salaries expense 3,000 Salaries payable 3,000 (To adjust the accrued salaries expense)

1 (b) Prepaid salaries 5,000 Salaries expense 5,000 (To adjust the prepaid salaries)

2 Bad debts expense 2,400 Allowance for bad debts 2,400 (To adjust the bad debts expense)

3 Interest expense 5,000 Interest payable 5,000 (To adjust the unpaid interest on bank overdraft)

4 (a) Revenue from cargo 10,000 Unearned cargo revenue 10,000 (To adjust the revenue from cargo)

4 (b) Cargo revenue receivable 7,000 Revenue from cargo 7,000 (To adjust the accrued revenue from cargo)

5 Drawings 5,000 Cash 5,000 (To adjust the withdrew cash for personal use by owner)

6 Depreciation expense 12,000 Allowance for depreciation 12,000 (To adjust the depreciation expense)

SOLUTION 2 (b) Accounting Principles for Adjustments:

1. Matching principle. 2. Accounting period. 3. Accrual basis of accounting.


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Page 5

MEHFOOZ & CO. OPENING ENTRIES

FOR THE PERIOD OPENING 1 JANUARY 2011


1 Jan Cash 65,000 2011 Accounts receivable 24,000 Aircraft 1,200,000 Prepaid salaries 5,000 Cargo revenue receivable 7,000 Allowance for depreciation 24,000 Accounts payable 18,000 Bank loan 25,000 Capital 1,213,600 Salaries payable 3,000 Allowance for bad debts 2,400 Interest payable 5,000 Unearned cargo revenue 10,000 (To open the various assets and equities accounts)

Q.No.3 ACCOUNTS RECEIVABLE (a) GIVEN: The following information is related to Saleem & Co. Accounts receivable Jan. 01, 2010 ................................................. Rs.1,000,000 Allowance for bad debts (Cr.) Jan. 01, 2010 .................................. Rs.5,000 Credit sales and collected during the year..................................... Rs.800,000 Accounts receivable written off during the year ........................... Rs.20,000 Bad debts estimated 5% on accounts receivable, ending balance. REQUIRED Compute the amount of bad debts and give an adjusting entry at Dec. 31, 2010. (b) GIVEN The following ledgers accounts are extracted from Naeem & Co.

Accounts Receivable

2010 2010 Jan 1 Balance 150,000 ii. Sales return 15,000 i. Sales 600,000 iii. Cash 400,000 iv. Sales discount 10,000 v. Note receivable 25,000 vi. Allowance for bad debts 10,000

Accounts Receivable

2010 2010 vi. Accounts receivable 10,000 Jan 1 Balance 15,000 REQUIRED Prepare entries in General Journal from the above postings.


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Page 6

SOLUTION 3 (a) Accounts Receivable

1 Jan 10 Balance 1,000,000 Cash 800,000 Sales 800,000 Allowance for bad debts 20,000

820,000 31 Dec 10 c/d balance 980,000

1,800,000 1,800,000

1 Jan 11 b/d balance 980,000 Computation of Bad Debts Expense: Accounts receivable (ending) 980,000 Rate of bad debts 5%

Allowance for bad debts adjusted balance 49,000 Add: Write off customer’s account 20,000

69,000 Less: Allowance for bad debts unadjusted balance (opening) (5,000)

Bad debts expense for the period 64,000

SALEEM & CO.

ADJUSTING ENTRY FOR THE PERIOD ENDED 31 DECEMBER 2010


31 Dec Bad debts expense 64,000 2010 Allowance for bad debts 64,000 (To adjust the bad debts expense for the period)

SOLUTION 3 (b)

NAEEM & CO. GENERAL JOURNAL


1 Accounts receivable 600,000 Sales 600,000 (To record the goods sold on account)

2 Sales return and allowances 15,000 Accounts receivable 15,000 (To record the goods returned by customers)

3 Cash 400,000 Accounts receivable 400,000 (To record the cash collected from customers)

4 Sales discount 10,000 Accounts receivable 10,000 (To record the discount allowed to customers)

5 Notes receivable 25,000 Accounts receivable 25,000 (To record the note issued against accounts receivable)

6 Allowance for bad debts 10,000 Accounts receivable 10,000 (To record the wrote off customer’s account)


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Page 7

Q.No.4 INVENTORY VALUATION (a) GIVEN: The following data relate to the business of Aamir & Co.

Date Units Unit Cost / Price

Nov. 1 Beginning inventory 6,000 Rs.100

Nov. 5 Purchased 3,000 Rs.150

Nov. 15 Sold 4,000 Rs.250

Nov. 25 Purchased 7,000 Rs.180

Nov. 30 Sold 6,000 Rs.300

REQUIRED (i) Prepare inventory card under FIFO Method. (ii) Assume that Co. uses Periodic Inventory System. Compute cost of goods sold and merchandise

inventory (ending) under LIFO Method & calculate gross profit. (b) GIVEN Saad Co. sells merchandise. At Dec. 31, 2010 the Co.’s inventory amounted to Rs.50,000. During the 1st week of Jan. 2011 the Co. made only one purchase and one sale. These transactions were as follows: Jan. 3: Sold merchandise for Rs.20,000 cash. The total cost of merchandise amounted to Rs.11,200. Jan. 7: Purchased merchandise amounted to Rs.10,000; term 2/10, n/30. REQUIRED Prepare journal entries to record the above transactions under Perpetual inventory System. SOLUTION 4 (a)

AAMIR & CO. INVENTORY VALUATION

PERPETUAL INVENTORY SYSTEM FIFO METHOD

FOR THE PERIOD NOVEMBER

Date Purchased Sales Balance

Units Unit cost

Total cost Units Unit cost

Total cost Units Unit cost

Total cost

Nov. 1 6,000 100 600,000

Nov. 5 3,000 150 450,000 6,000 100 600,000 3,000 150 450,000

Nov. 15 4,000 100 400,000 2,000 100 200,000 3,000 150 450,000

Nov. 25 7,000 180 1,260,000 2,000 100 200,000 3,000 150 450,000 7,000 180 1,260,000

Nov. 30 2,000 100 200,000 6,000 180 1,080,000 3,000 150 450,000 1,000 180 180,000

10,000 1,710,000 10,000 1,230,000 6,000 1,080,000


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Page 8

AAMIR & CO. SCHEDULE OF UNITS PURCHASED, UNITS SOLD AND UNITS AT END

FOR THE PERIOD NOVEMBER

Date Description Units

Nov. 1 Merchandise inventory (opening) @ Rs.100 each 6,000 Add: Units Purchased During the Period: Nov. 5 Purchased @ Rs.150 each 3,000 Nov. 25 Purchased @ Rs.180 each 7,000

Total units purchased during the period 10,000

Total units available for sale during the period 16,000 Less: Units Sold During the Period: Nov. 15 Sold 4,000 Nov. 30 Sold 6,000

Total units sold during the period (10,000)

Unsold units at end 6,000

Computation of Cost of Ending Inventory by LIFO Method (Periodic System):

6,000 Units @ Rs.100 each 600,000

6,000 Cost of ending inventory 600,000

Computation of Cost of Goods Sold by LIFO Method (Periodic System):

3,000 Units @ Rs.150 each 450,000 7,000 Units @ Rs.180 each 1,260,000

10,000 Cost of goods sold 1,710,000

OR Merchandise inventory (opening) 600,000 Add: Net purchases during the period 1,710,000

Merchandise available for sale 2,310,000 Less: Merchandise inventory (ending) (600,000)

Cost of goods sold 1,710,000

Computation of Gross Profit by LIFO Method (Periodic System):

4,000 Units @ Rs.250 each 1,000,000 6,000 Units @ Rs.300 each 1,800,000

10,000 Sales 2,800,000

Sales 2,800,000 Less: Cost of goods sold (1,710,000)

Gross profit 1,090,000

SOLUTION 4 (b)

M/S. ___________ GENERAL JOURNAL (PERIODIC SYSTEM)


Jan 3 Cash 20,000 Sales 20,000 (To record the goods sold for cash)


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Jan 3 Cost of goods sold 11,200 Merchandise 11,200 (To record the cost of goods sold)

Jan 7 Merchandise 10,000 Accounts payable 10,000 (To record the merchandise purchased on account)

Q.No.5 VOUCHER SYSTEM GIVEN: Nazim & Co. uses Voucher System by net price method. Following are the vouchers prepared and cheques issued during December, 2010:

Dec. 1: Prepared voucher No.348 for Rs.40,000 payable to Amjad & Co. for machinery purchased on terms 3/10, n/30.

5: Prepared voucher No.349 for Rs.35,000 payable to Samsam & Co. for purchase of merchandise on terms 2/10, n/30.

7: Issued cheque No.203 in payment of voucher No.348.

10: Prepared voucher No.350 for Rs.4,800 to replenish the petty cash fund for the following disbursement: Supplies Rs.2,200; Entertainment Rs.1,300; Postage Rs.300; Miscellaneous general expense Rs.1,000.

20: Issued cheque No.204 for in payment of voucher No.349 because the discount period had elapsed.

25: Prepared voucher No.351 for Rs.5,000 as drawing by owner.


28: Prepared voucher No.352 for Rs.10,000 payable to employees for December, 2010 salaries.


REQUIRED Record the above transactions in General Journal form. SOLUTION 5

NAZIM & CO. GENERAL JOURNAL

(VOUCHER REGISTER) FOR THE MONTH OF DECEMBER 2010


Dec. 1 Machinery 40,000 Voucher payable (No. 348) 40,000 (To record the voucher issued for purchase of machine)

Dec. 5 Purchases 35,000 Voucher payable (No. 349) 34,300 (To record the voucher prepared for purchase of goods)


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Dec. 10 Supplies 2,200 Entertainment 1,300 Postage 300 Miscellaneous general expenses 1,000 Voucher payable (No. 350) 4,800 (To record the voucher issued for replenishment of

petty cash fund)

Dec. 25 Drawings 5,000 Voucher payable (No. 351) 5,000 (To record the voucher prepared for drawing by owner)

Dec. 28 Salaries expense 10,000 Voucher payable (No. 352) 10,000 (To record the voucher prepared for salaries expense)

NAZIM & CO.

GENERAL JOURNAL (CHEQUE REGISTER)

FOR THE MONTH OF DECEMBER 2010


Dec. 7 Voucher payable (No. 348) 40,000 Bank 38,800 Machinery 1,200 (To record the payment of voucher for purchase of

machinery within discount period)

Dec. 20 Voucher payable (No. 349) 35,000 Bank 35,000 (To record the payment of voucher for purchase of

merchandise after discount period)

Dec. 27 Voucher payable (No. 351) 5,000 Bank 5,000 (To record the payment of voucher for drawings)

Dec. 31 Voucher payable (No. 352) 10,000 Bank 10,000 (To record the payment of voucher for salaries)

Q.No.6 DEPRECIATION (a) GIVEN: Yasir & Co. provides the following information:

Rate Per Unit Cost Salvage Value Estimated Production Units

Rs. Rs. Rs.

2 80,000 20,000 ?

4 100,000 ? 20,000

? 150,000 30,000 30,000

3 ? 50,000 150,000

REQUIRED Compute the missing amounts from the above table.


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Page 11

(b) GIVEN: On October 1, 2008, Qasim & Co. purchased a machine for Rs.600,000 on account. The machine had an estimated service life of 10 years and an estimated residual value of Rs.50,000. The company uses SUM-OF-THE-YEARS-DIGIT METHOD for depreciation. On September 30, 2010 the company traded the machine for a new machine having an invoice price of Rs.500,000. The trade-in-allowance for the old machine on the date of exchange was Rs.400,000. REQUIRED Prepare dated entries in General Journal to record purchase of machine, and the exchange of machine on Sept. 30, 2010. (Show all computations). SOLUTION 6 (a) Case – I: Computation of Estimated Production Units:

Estimated production units = Cost – Salvage value

Rate per unit Estimated production units = 80,000 – 20,000

2 Estimated production units = 30,000 Case – II: Computation of Salvage Value: Salvage value = Cost – (Rate per unit x Estimated production units) Salvage value = 100,000 – (4 x 20,000) Salvage value = 100,000 – 80,000 Salvage value = Rs.20,000 Case – III: Computation of Rate Per Unit:

Rate per unit = Cost – Salvage value

Estimated production units

Rate per unit = 150,000 – 30,000

30,000 Rate per unit = Rs.4 Case – IV: Computation of Cost: Cost = (Rate per unit x Estimated production units) + Salvage value Cost = (3 x 150,000) + 50,000 Cost = 450,000 + 50,000 Cost = Rs.500,000 SOLUTION 6 (b) Computation of Depreciation Expense by Sum of the Year’s Digit Method: Annual depreciation = Cost – Salvage value (Depreciable cost) x Yearly fraction Fraction = n (n + 1) 2 Fraction = 10 (10 +1) 2 Fraction = 55


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Page 12

Year Depreciable Cost Yearly Fraction Depreciation Expense

2008 600,000 – 50,000 = 550,000 10/55 100,000 x 3/12 = 25,000

2009 600,000 – 50,000 = 550,000 600,000 – 50,000 = 550,000

10/55 9/55

100,000 x 9/12 = 75,000 90,000 x 3/12 = 22,500

97,500

2010 600,000 – 50,000 = 550,000 9/55 90,000 x 9/12 = 67,500

Accumulated depreciation upto date of exchange 190,000

Computation of Gain or Loss on Exchange: Cost of machine (old) 600,000 Less: Allowance for depreciation upto date (190,000)

Book value 410,000 Less: Trade in allowance (400,000)

Loss on exchange 10,000

Computation of Cash Payment: Cost of machine (new) 500,000 Less: Trade in allowance (400,000)

Cash payment 100,000

QASIM & CO.

GENERAL JOURNAL


Oct 1 Machine 600,000 2008 Accounts payable 600,000 (To record the machine purchased on account)

Dec 31 Depreciation expense 25,000 2008 Allowance for depreciation 25,000 (To record the depreciation expense for the period)

Dec 31 Expense and revenue summary 25,000 2008 Depreciation expense 25,000 (To close the depreciation expense account)

Dec 31 Depreciation expense 97,500 2009 Allowance for depreciation 97,500 (To record the depreciation expense for the period)

Dec 31 Expense and revenue summary 97,500 2009 Depreciation expense 97,500 (To close the depreciation expense account)

Sep 30 Depreciation expense 67,500 2010 Allowance for depreciation 67,500 (To record the depreciation expense for the period)

Sep 30 Machine (New) 500,000 2010 Allowance for depreciation 190,000 Loss on exchange 10,000 Cash 100,000 Machine (Old) 600,000 (To record the exchange of machine on loss)


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Page 13

Q.No.7 PARTNERSHIP (a) GIVEN:

(i) Salary payable to partner (ii) Drawings made by partner (iii) Fresh capital introduced by a capital (iv) Share of profit earned by a partner (v) Commission payable to partner (vi) Interest on capital of a partner (vii) Interest on drawing of a partner

REQUIRED Assuming the partners’ capital accounts are fixed, record the above entries in relevant accounts. (b) GIVEN: Ansari and Wilayat were partners sharing profits in the ratio of 3:2. On the date of dissolution, their capitals: Ansari Rs.76,500; Wilayat Rs.43,000. The amount payable to creditors was Rs.275,000. The balance of cash was Rs.7,600. The other assets realized Rs.254,300. The expenses on dissolution were Rs.15,400. All partners were solvent. REQUIRED Prepare General Journal entries for the above transactions. SOLUTION 7 (a)

Capital Account

(iii) Fresh capital introduced by a partner

Current Account

(ii) Drawings made by a partner (i) Salary payable to a partner (vii) Interest on drawings of a partner (iv) Share of profit earned by a partner (v) Commission payable to a partner (vi) Interest on capital of a partner SOLUTION 7 (b) Computation of Other Assets: Total partners’ capital (76,500 + 43,000) 119,500 Add: Total liabilities 275,000

Total assets 394,500 Less: Cash (7,600)

Other assets 386,900

__________ PARTNERSHIP

GENERAL JOURNAL


1 Cash 254,300 Realization 132,600 Other assets 386,900 (To record the sale of other assets on loss)

2 Realization 15,400 Cash 15,400 (To record the liquidation expenses paid)

3 Ansari’s Capital (148,000 x 3/5) 88,800 Wilayat’s Capital (148,000 x 2/5) 59,200 Realization (132,600 + 15,400) 148,000 (To close the realization account)


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Page 14


4 Cash 28,500 Ansari’s Capital (88,800 – 76,500) 12,300 Wilayat’s Capital (59,200 – 43,000) 16,200 (To record the cash contributed by partners to meet

their deficiency)

5 Accounts payable 275,000 Cash (7,600 + 254,300 – 15,400 + 28,500) 275,000 (To record the payment of liability)

Q.No.8 CORRECTION OF ERRORS (a) GIVEN: The following errors were made during the current year and were discovered before closing the books of accounts:

1) Accrued advertising expense of Rs.5,000 was overlooked. 2) Return of goods of Rs.1,500 by Shakeel was entered in error in Raheel’s account. 3) Cash drawings of Rs.4,000 was credited to the bank of the cash book. 4) Repairs to machinery of Rs.3,000 was charged to machinery account.

REQUIRED Rectify entries in General Journal. (b) GIVEN: The following errors were made during the year 2009 and were discovered during 2010:

1) Ending inventory was overstated by Rs.10,000. 2) Credit purchase of Rs.8,000 was not recorded in 2009 although goods were received and

included in the inventory of 2009. 3) Additional investment by owner of Rs.100,000 was credited to sales account. 4) Goods taken out for owner’s use Rs.7,000 was debited to general expenses account.

REQUIRED Rectify entries in General Journal. SOLUTION 8 (a)

M/S. _________ CORRECTING ENTRIES


1 Advertising expense 5,000 Advertising payable 5,000 (To correct the accrued advertising expense)

2 Accounts receivable (Raheel) 1,500 Accounts receivable (Shakeel) 1,500 (To correct the goods returned by Shakeel)

3 Bank 4,000 Cash 4,000 (To correct the withdrew cash for personal use)

4 Repairs expense 3,000 Machinery 3,000 (To correct the repairs of machinery)


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Page 15

SOLUTION 8 (b) M/S. _________

CORRECTING ENTRIES


1 Capital 10,000 Merchandise inventory 10,000 (To correct the overstatement of inventory)

2 Capital 8,000 Accounts payable 8,000 (To correct the goods purchased in previous year)

3 No entry

4 No entry

Documents

B.COM – I – ACCOUNTINGa4accounting.weebly.com/uploads/7/1/2/8/7128209/b.com_-_i_-_2011r.pdfSOLUTION 2 (b) Accounting Principles for Adjustments: 1. Matching principle. 2. Accounting